I’ve been away from this blog for a while researching and working on other things, some cosmetic and some less so but while I’ve been away I’ve also been digging around into the world of Fair Trade and one thing that has struck me of late strikes at the very heart of who we are as people.

Does the need for certified ‘Fair Trade’ imply that regular trade is unfair?

A deep question indeed…….

One of the activities I’ve been participating in outside of direct cosmetic chemistry is farming and more specifically my husband and I have been undertaking a course in farm planning and management so that we might have the skills and contacts we need to make a go of our 50 acre block.

Farming has put me in touch with primary producers here in Australia and the story I’m getting from these people is one of increasing unfairness, of seeing margins squeezed, of being taken advantage of, marginalised, forgotten.

You don’t have to go to Africa to ask a farmer if trade is fair?

The last couple of weeks here in Australia have seen the fairness of milk pricing put on the table as many farmers have been slugged bills from the processors that run into thousands (sometimes hundreds of thousands) of dollars due to them slashing farm gate prices and demanding a claw back of funds. The issue is complex and is explained well here but basically our Aussie milk farm-gate price is determined by market forces – the local market (25% of total milk production) is dominated by a duopoly of supermarkets who have, since 2011 used milk as a loss leader to get people into their stores while the external market (75%) is traded on a demand and with the rising Aussie dollar and demand for powdered milk in China shrinking processor Murray Goulburn has ended up in a financial pickle!

Going back in time to before this current crisis the Australian dairy industry had been facing pressures to ‘get big or get out’ in order to streamline supply and cut costs in preparation for global market success. Success for whom you might ask?

Some words to keep in mind here are:

Global Market

Free Trade Agreements

While we do use milk in our cosmetics this example is a classic case of what happens when the market moves away from the farmer. Indeed, I’m convinced that the further away from the consumer the farmer is, the greater the chance that trade will be unfair mainly because it is so easy to lose sight of the farmer.

Fair Trade?

Emerging Economies.

Unlike Australia which is a mixed economy, economies of emerging countries are typically farm based and often single product dominated (the so-called banana republics). Farms are typically small, family owned enterprises that have moved past subsistence and into a trading situation. The fact that these farms are family enterprises needs to be held firmly in our minds when discussing things like occupational health and safety, pay, child labour and working hours. In particular I believe that it is imperative we avoid allowing ‘Western privilege’ to cloud our views on what is and isn’t acceptable in terms of division of labour while at the same time working to empower positive improvement.

Many, Many small farms producing cash crops for market.

Cocoa Butter.

Around 50 million people globally depend on cocoa for their livelihoods (2011, Fair trade commodity briefing)

3.5 million tonnes of cocoa beans produced each year.

Over 90% of the world’s cocoa is grown on 5.5 million small farms.

Cocoa growers currently receive around 6% of the price of chocolate paid by consumers in rich countries, compared with 16% in the late 1980’s

70% of Cocoa is grown in West Africa (Ghana, Ivory Coast, Nigeria, Cameroon.

Around 7% is from South America.

14% from Indonesia

9% elsewhere.

Although the on-the-ground farming situation for cocoa growing remains in the hands of the farmers who have had less pressure to grow than say those in the Western World that is not necessarily for good, honourable reasons. Even if they wanted to farmers in these emerging markets are effectively prevented from rising up the ladder and growing their share of the pie because of the way the global market works.

Cocoa is as good an example as any.

Cocoa is farmed by many farmers. The farm-gate cocoa price is either negotiated in a co-op situation run to help get a fair price for the farmer or by licensed buying companies that may pay more weight to the global price of cocoa than to local farming families. The cocoa may then go through another level of administration before making its way to foreign-owned up-stream processors or out onto the local market.

With regard to cocoa I was particularly alarmed to find that all of the value-adding processing is in the hands of multinational companies, that the only money the cocoa producing country is guaranteed is the traded price of the raw commodity.

Africa only captures the profit made on its raw commodity and not the value added product.

Let me explain.

Cocoa beans are picked and then must be ground to split the waste shells from the liquor or NIBS. These nibs can then be further processed into cocoa powder, cocoa butter or chocolate:

Shelf Life implications for each stage of processing.

BEANS Cocoa beans are normally stored in form of whole beans in jute bags for relatively short period. They can be stored for 5 to 6 months safely. During storage and transportation they are subjected to problems of insect infestation, mould contamination and moisture exchange between atmosphere and the beans, which are hygroscopic

NIBS If cared for properly, Cacao Nibs have a shelf life of two to three years as long as these conditions are met:

Avoid exposure to heat. The nibs will remain fresh if stored at room temperature or below.

Avoid exposure to direct sunlight.

Squeeze all of the air out of the bag before sealing.

Seal the bag tightly after each use.

Store the nibs in a dry place, and avoid all contact with moisture.

Butter If kept in a cool, dry environment the butter should have a shelf life in excess of 1 year.

Turning Beans into Nibs is a significant step in the process as you take a highly vulnerable and perishable crop and turn it into something with a long and stable shelf life (something us cosmetic scientists know all about).

The fact that the nib step is owned and controlled by multinationals is a tragedy that bleeds cocoa growing countries of potential profit. Profit that could be re-invested into infrastructure, manufacturing capability, farm improvements, education, healthcare and more besides.

This happens irrespective of whether the beans are bought for a fair market price or not. The country is still only seeing a small slice of the profit pie and because of that it is prevented from growing and investing in the very infrastructure needed to take control of more of the supply chain.

So where does fair trade fit into all of this?

Fair trade works to keep small family farms viable by negotiating fairer farm-gate prices for the crops and working towards improving working conditions. While this is a valid and worthwhile endeavour the power of this enterprise sits entirely in the hands of the consumer who must then agree (often consciously) to pay a premium for the goods on offer. Often the consumer must also expel effort to seek out these goods all the while knowing that Fair Trade is no guarantee of quality or reproducability. That is not to say that fair trade material is of inferior quality, more that the quality of the product isn’t the key concern although the Fair Trade brand good will does rely on a quality product.

There is no doubt that the Fair Trade model does improve the lot of farmers exposed to the global market but is there more we could be doing?

Free Trade, the Global Market and Globalisation.

What I can’t fail to notice with all of this is the role that free trade plays in manipulating a market and exploiting producers. When the world is your market those with the means to explore and move with the market can exploit it, shopping around for cheaper product, faster supply, different quality. We have grown used to this and often accept it without question but lately I’ve been questioning if we are right to accept this as a good way to trade.

Global Market – This is basically a situation where the whole world is seen as the market for your goods. There is nothing inherently wrong with that. Since the beginning of time people have peddled their wares around the globe trading, swapping, negotiating and growing.

Free Trade – This is a legal agreement set up between countries or regions (such as the European Free Trade agreement that Ghana and the Ivory Coast have with Europe) to reduce the barriers to trade between countries. Often a country will impose import duties and tariffs on foreign goods to protect their local industry. Before World War two it was common for countries to favour goods from their own nations and impose heavy tariffs and taxes on imported goods. However, after World War two a guy called Bretton Woods put together a plan that turned into the World Trade Organisation which promoted free trade as a way of securing world peace. This sparked more free trade agreements and has ultimately lead us to where we are now.

Globalisation – This is really a philosophy that has risen up out of global travel and trade – international integration or the ‘it’s a small world’ thing.

Is there a way of making all trade fair?

I think that’s a subject for another blog post given that this one has become quite long but in a (cocoa) nutshell I’d say this. Any structure that creates the environment for disproportionate wealth and choice detached from the REAL economy (i.e the people who profit most don’t even have to see the product they are selling) is inherently unfair and must be carefully monitored in order to regulate for this.

Free markets in liberal economies resist regulation as it goes against their political ethos.

The economies of the Western World are all liberal economies.

So while yes, there is a way there may not be enough will.

It’s worth digging into that a bit more in another post.

And it is also worth looking more closely at how Fair Trade can be integrated into a cosmetic brand. Some are doing it but how and is it really making a difference?

Related

Hi! An informative and interesting post touching an important subject, thanks!

Regarding fair trade in developed countries. I live in Germany and in fact the farmers here have just this week protested the low milk prices they are getting from the buyers (who use milk as loss leader product in the discounters, just as you explained). The farmers want the production quotas back (that have been lifted eu-wide just last year after decades of negotiations and several transition years farmers had been given to adjust) and minimum price guarantees from the government (essentially that the government tops up the difference if the buyers don’t pay enough).

You know, at first glance one can sympathize with farmers – it’s really hard work and not to get enough for it is unfair. But then it got me thinking – farmer protests are quite common here and in France. Both wealthy western countries. Yet farmers block streets in cities claiming they are too poor to earn a livelihood. But is it really so? Is someone who owns land (and we are not talking about small patches here, most farmers in Germany own really very big slots, enough for industrial farming), machinery, property such as all the farming and personal houses, and animals…. Is such a person really poor? Poor enough to go protesting to get more protection and subsidies paid for by the rest of society?

After considering it for a while I came to believe it’s a slap in the face to ppl who don’t own anything to consider western farmers poor. Yes, they have costs of doing business, like any other business person does. If they cannot operate profitably, means they are not good at being farmers. If they can’t make a living by farming, they should sell their land and machinery and do something else. Or not do anything at all – they’ll earn enough from that sale to live comfortably. Somebody else with a plan will buy that land and use it better. In the end everybody – farmers, those who would replace them and the society as a whole will be better off. But they want to cling to their way of living at the cost of everybody else.

Farming has been receiving 3/4 of all the subsidies eu provides for a long time. They haven’t used it right if their business is still not working. Meanwhile, I have no sympathy left for local farmers who protest at all. There are enough examples of German farmers who thrive – they have moved to a profitable niche, scaled back production, switched to organic, or expanded to use economies of scale. Those who missed that train have themselves to blame. Don’t think the society should pay for their mistakes. When a business in a different industry goes bust we don’t rush to bail them out (save for banks, which seem to have a special relationship with politics of their own).

These are my thoughts as far as farming in wealthy developed countries is concerned. Developing and/or poor countries probably are a different matter (although they probably would even profit if our farmers reduce production – then developing countries would have a better shot at competitively exporting their produce to EU).

Sorry for a lengthy rant, just wanted to share my thoughts of farming fairness issues I see in my country.

I do understand where you are coming from. I am from the UK and I remember the strikes from when I was growing up and before I left Europe in 2004.

Reading your response was fascinating and made me think about the situation in another way.

I think there are two things here to do with farming – the supply and the demand. Both linked (or at least they should be).

Supply. Farmers.

I feel it as unfair to factor in the dollar value of the real estate the farmer owns in this equation as a farmer can’t help where he is born and that as far as I am aware wherever there are people it is reasonable to expect there will be a need (demand) for food be that milk, vegetables, meat or grain.

The farm is nothing without land either owned, leased or rented. The value of that land is, to a large degree out of the hands of the farmer and no matter what they do short of nuke it, the land will have a value influenced these days to at least some degree by the global market. Here in Australia foreigners can still buy farm land, the purchasing of prime food producing land by overseas investors is a hot topic for our farmers.

So land values should be factored out given that the farmer is no longer a farmer without the ability to farm land – be it theirs or someone elses.

On that note should a farmer wish to continue farming but sell their land to release some equity they can only do that once. It may set them up for life but once that farm land moves out of the farm land cycle it doesn’t tend to come back thus leaving an ever decreasing pool of opportunities to farm and produce goods and a smaller and smaller pool of farmers able to ‘cash in’ when the next squeeze comes. If this carries on we end up with no farms and no farmers. No money left in farming.

In terms of the production side of supply I think it SHOULD be reasonable for a farmer in a country with a growing population to feel that they have the means to make their business viable based on the fact that everyone needs to eat and a growing population means more people. This is the case across Europe – population growth. This is especially true given the decline in farming generally – people increase, farm numbers decrease.

Demand.

But that is where a problem comes in because the farmer in Germany doesn’t just produce for German customers. They now have their produce traded on the global market, sold anywhere presumably. Well, that is what happens in Australia. So the farmer has little control of the value of their produce because they are now competing with farmers the world over.

Now the demand could be global, supply could be global. A very different world to the one that many farmers grew up in in the 50’s, 60’s and 70’s.
Government Compensation and price guarantees.

So this is where things do get a bit crazy. Is it fair for a government to top up farmers with production quotas, price guarantees etc? Well I liken this to putting a patch on a leaky boat.

The current free trade, market liberalisation we see in world basically runs against any kind of government intervention. Basically the farmers just have to deal with it on their own. The problem is who is controlling the market? Who is setting the prices? Who says that Milk is only worth $1 litre or a Kg of Rice $2?

These people are not farmers.

These people at the top are traders who never touch the stuff until it lands on their plate.

These people pull the strings in a global market that is built to resist control.

I feel the farmers are right to be angry when they have spent their lives providing us with essential food items. However, I do feel it possible that some have become used to government prop-ups to keep the leaky boat afloat. It is possible that some of these farmers haven’t moved with the times at all and really do just want subsidies for doing nothing. But it is also possible that they are running and running just to stay afloat, don’t want to sell land that has been in the family for hundreds of years and feel depressed because they can see people all around them enjoying products that they can produce yet the people no longer VALUE them.

The question I’m asking myself is this. How viable is the whole system? At what point do we say NO, we need to grow our own food.

I believe in a free market economy but I also believe that freedom has to come with checks and balances plus a vision of what we are doing this for. If all we are doing by participating in a global market is running farmers out of business while keeping others in life-long poverty I think we’ve got it wrong.

I feel this issue goes to the heart of what is going wrong with our world and I hope that we can find a solution that keeps our local farmers farming without the need for government subsidy or protection.

Thank you so much for continuing the discussions and sharing your thoughts.

Hi! Thanks for your reply! You have great analysis skills, you cut right through to the issues. And you are probably right on the points you make (“probably” because such macro economic matters are complicated beasts, impossible to know for sure, even economists themselves only try to make educated guesses about how it works, but your argumentation makes sense to me). The only thing I’m not sure about is factoring out the value of land and property the farmer has inherited from his ancestors. Maybe it’s a narrative specific to Germany and does not apply to other countries, but the farmers’ associations here explicitly portrait protesting farmers as “poor”. And I find it impossibly misleading and cynical. Because at the end of the day somebody who owns a lot of land is simply not poor. A homeless person living under the bridge is poor, but not a land owning farmer who operates his farming business at a loss (whatever reasons may have caused that loss). It is true that farmers cannot directly influence the value of property they own, but so can no one. All property prices are driven by market forces. And it is certainly a painful decision to make, if one has to sell something that belonged to the family for generations and one feels a strong emotional connection with (as I imagine would be the case with land). But that’s the reality of it. If, say, an office worker inherits his family’s home he grew up in, then, at some point in his life starts an enterprise (say, organizing children’s birthday parties), spends all his savings on it, does his best and works really hard to make it work believing he provides a valuable service to the society, takes out a loan or two, and after several years has to face the truth that his start-up is doomed and has to declare bankruptcy. Now this unlucky person has no savings left and no immediate source of income, but potentially some debts to pay off. It is going to be painful, but he’ll have to sell the family home, which will pay off debts and provide enough for a new start. And no one will say the government has to step in to save him from having to sell that family mansion, because as long as he is the owner of that property, the guy is simply not poor. This is the way the story would go in any other industry. And it does not matter wether the business failed because the guy was bad at party planning or because recession hit just when he started his company and ppl all of a sudden stopped throwing extravagant kids’ parties. Also, the guy would have no control over the price his house would go for, having to sell even if property market was in a bad shape at that moment. It’s a somewhat silly example, but it feels to me farming should be no different. And here in Germany it is treated very differently indeed, with government consistently spending huge amounts of public money on propping up farmers who can’t make a profit and at the same time don’t want to sell their land, as if it is some kind of birth right to own it in perpetuity. And you are right, one cannot be a farmer if one sells the farming land, but that’s the whole point, maybe they shouldn’t be farmers if they are constantly struggling with being farmers. The land would not get lost, whoever buys it will try his hand at working with it one way or another, and maybe he’d be more successful than the previous owners. This is the unfairness I feel exists in Germany at least, farming being treated as a holy untouchable cow. That said, I’m not for letting really struggling people starve if they cannot manage to earn a living. A fair social support network is an important social good, and completely unregulated markets tend to produce undesirable outcomes such as monopolies and such, so also not a great idea. On the other note, do you farm yourself? Is it your experience that its unprofitable to to so in Australia? Just curious 🙂

Hi Jana,
It sounds like there is an element of entitlement coming into play with your example, that somehow no matter what decisions certain land holders make (the decisions directly in their control such as how they run their businesses day-to-day etc) that they should somehow be supported ‘just because’ they happen to have been born into a particular set of circumstances. If that is what is at the base of what you are saying it does need to be called out and actively discouraged as it sets up a class divide which is simply un-democratic. But underneath that I guess what I was saying is that farm land IS the business and farming is more of a vocation than a typical ‘factory’ type business scenario, plus it is a necessity that does have to survive in one shape or another so we can eat. I feel that splitting the two arguments up mentally – the issue of entitlement and the issue of the free market would help both of us understand this more.

As for farming YES I am a new farmer. I have 50 acres of land with my husband and we are currently undertaking a Diploma (just a step under a degree) in Farm Management as well as working on our land to improve the soil with a view to growing a range of crops for our own use and for the markets. A small project and not a key financial part of my business but interesting all the same. I hope to grow crops that are relevant to cosmetics and use the site as a training centre for my clients to visit. I have clients from all over the world so it would be nice to come and sit with the Kangaroos and Echidnas and learn some chemistry 🙂

Many, many Australian family farmers are struggling, young people are not taking up farming and depression and suicide rates are high amongst our farmers. We have terrible droughts, fires and floods to contend with plus the other issues to do with policy etc. It isn’t that all farming is un-viable here because that is not true but I don’t think anyone here goes into farming to make some easy money. As for land values etc our land is cheap compared to Germany but it is also less fertile and often comes without mains power, water and sewage – all of which have to be factored in. The other threat we have here is Coal Seam Gas taking and contaminating the underground water supplies. I think that is so in Germany too?

I hope you and I can put the world to rights Jana 🙂 Which part of Germany are you from?

How cool! That sounds like a super exciting project you are undertaking. Best of luck with it! If I were a client of yours, I’d certainly love to come and see herbs & kangaroos 🙂 Alas, I don’t work anywhere near cosmetics or chemistry. Your blog is very interesting though, not only the farming part. I live in North Rhein Westfalia (in the west, close to Belgian and Dutch border), and also regularly spend time in Berlin.